This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

A (I)POX on Your Portfolio

One byproduct of the exchange-traded fund boom is gimmicky ETFs. However, some funds that might at first glance appear gimmicky can be quite useful, like the First Trust IPOX-100 Index Fund (FPX), which started trading Thursday.

IPOX Schuster, which will manage the ETF, maintains several indices of IPOs trading in the after market. The stocks in the IPOX-100 Index, and by extension the ETF, are the 100 largest issues that are in their seventh through 1,000th trading days after coming public. This pulls in a broad swath of stocks that currently include such biggies as the Chicago Mercantile Exchange (CME - Get Report) and Google (GOOG - Get Report).

Over the last 10 years, the average annual return for IPOs has been 11.78%, vs. 8.84% for the S&P 500.

As you might expect, newer companies are usually smaller companies. The median market cap of the S&P 500 is over $90 billion; the average market cap for the IPOX-100 is $4.01 billion and $1.08 billion for the iShares Russell 2000 Index Fund (IWM). The IPOX-100 is 100% growth, so a better ETF to compare it to is the iShares Russell 2000 Growth Index Fund (IWO).

Because of the "growthy" nature of the fund, it looks quite expensive, with an average P/E of 37, price/book ratio of 6.79 and price/sales of 6.50.

The expense ratio of the fund will be 0.60%, which is competitive with the specialized ETFs offered by PowerShares.

As the chart below shows, the iShares Russell 2000 Growth Index Fund and IPOX seem to react to news in the same manner, but IPOX has dramatically outperformed.

Despite a reasonably tight correlation, they have very different holdings. Some 33% of IPOX's assets are in financial stocks, but only 12% of the iShares Russell 2000 fund. The iShares fund has 20% in health care; IPOX only has 4.5%. They have roughly similar weightings in consumer discretionary stocks and technology of 20% to 25% each.

Look At Those IPOs Go
The IPOX-100 Index has soundly outperformed the iShares Russell 2000 Growth Index Fund

The IPOX-100's heavy leaning toward financials is largely due to Genworth Financial (GNW), CME and the NYSE Group (NYX), which are all top 10 holdings, at 4.7%, 4.3% and 4.0%, respectively, and will probably be in the fund for a while more.

IPOX-100 Index Top 10 Holdings
(as of March 17)
Source: First Trust

Google is the largest holding at 10%, the maximum the fund allows. This eliminates some of the single stock risk that bedevils other narrow-based ETFs. While the exposure to Google isn't absurd, I would expect that if Google implodes, this fund would struggle.
Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, Ariz., and the author of Random Roger's Big Picture Blog. At the time of publication, Nusbaum had no positions in any of the securities mentioned in this column, although positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
FPX $51.09 0.33%
IWO $141.12 0.55%
IWM $115.64 0.11%
CME $88.28 -1.80%
GOOG $643.48 0.68%


Chart of I:DJI
DOW 17,084.49 +33.74 0.20%
S&P 500 2,013.43 +15.91 0.80%
NASDAQ 4,830.47 +19.6820 0.41%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs